Starting the journey to homeownership is like setting off on an expedition. You know what your destination is—a place to call your own—but the path is full of unexpected expenses and obstacles that need to be navigated with the right knowledge and care. The process of buying a new home is stressful in itself and many first-time homebuyers are surprised when confronted with the true cost of buying a home in the UK. Let's illuminate these paths together, ensuring you're equipped for every twist and turn.
Overview of The Home Buying Process
Buying a home is a significant milestone that involves navigating through various stages, paperwork, and professionals. Here's a comprehensive overview of the process:
Saving for Deposit: Saving for a deposit is the first step for many prospective homebuyers. A deposit is typically 10% of the property's value, but having a 15% deposit or more could help you secure the best mortgage rates. With soaring house prices, this may require saving anywhere from £10,000 to £60,000 or more.
Finding a Property: Researching areas and properties within your budget is essential. Take the time to view potential homes until you find your dream home that meets your needs and preferences.
Making an Offer: Once you've found the perfect property, your estate agent will submit an offer to the seller. Be prepared for some negotiation back and forth as both parties strive to reach a mutually acceptable price.
Conveyancing: Conveyancing involves the legal transfer of property ownership. The buyer and seller each hire a solicitor to handle the legal work on their behalf, ensuring that all necessary paperwork is in order for a smooth transfer.
Surveys: Before finalising the purchase, it's crucial to conduct various home surveys to uncover any potential issues or costs for repairs. Surveys help buyers make informed decisions and negotiate with sellers if necessary.
Mortgage Application: If you require financing, you'll need to apply for a mortgage. Take the time to shop around for the best rates and terms that suit your financial situation.
Exchange of Contracts: Once all parties are satisfied with the terms of the sale, the exchange of contracts takes place. At this point, both buyer and seller are legally bound to complete the transaction as agreed upon.
Completion Day: Completion day marks the final step in the house buying process. This is when the buyer pays the remaining amount owed, and in return, receives the keys to their new property. It's an exciting moment that signifies the culmination of months of hard work and preparation.
Different costs involved when buying a home
Stamp Duty Land Tax (SDLT)
One of the most significant costs, aside from the purchase price of the property, is Stamp Duty Land Tax (SDLT) in England and Northern Ireland. Never heard of SDLT? Don’t worry, you’re not alone.
Stamp Duty Land Tax is a tax levied in England and Northern Ireland on the purchase of properties and land over a certain amount. The tax applies to both freehold and leasehold properties, whether purchased outright or with a mortgage. Different rates apply for first-time buyers, residential properties, non-residential properties. Basically, the more expensive the property, the higher the percentage of SDLT. For many buyers, this tax represents the first major hurdle in the homeownership journey.
You can use the SDLT Calculator to get an idea of the tax you’ll need to pay.
Conveyancing Fees
The important part of the process – conveyancing. This involves legal work to transfer ownership of the property from the seller to you. These fees can vary widely depending on the complexity of the transaction and the solicitor's rates and expertise. They include conducting local searches, reviewing the terms of the sale, and handling the transfer of funds. Engaging a conveyancing solicitor early on is crucial to navigating this process smoothly and avoiding any legal pitfalls.
How much you will have to pay for your conveyancing depends on whether you are buying or selling property (or both), the value of the property you are selling / purchasing, and whether the property is leasehold or freehold. Take a look at our conveyancing fees guide to find out what to expect: Conveyancing Quote.
Survey Costs
Before committing to a property, understanding its condition is crucial. This is where surveys come in. From basic condition reports to full structural surveys, the depth of investigation can vary, and with it, the cost. Research from Direct Line Home Insurance suggests nearly 100,000 home sales were completed in the 2019/20 financial year without a survey of the property. Despite 42 per cent of surveys uncovering issues with a property, nine per cent of homeowners did not have one completed. A quarter (25 per cent) of homebuyers were later hit with an unexpected bill for repair work, at an average cost of £3,676. This shows the importance of investing in a comprehensive survey can save you from future expenses for repairs and maintenance.
What kind of problems are uncovered during home surveys?
Damp: Dampness caused by water retention issues can lead to mould growth, structural damage, and health problems for occupants. Identifying and addressing damp problems early can prevent further deterioration of the property and ensure a safe and healthy living environment.
Asbestos: Although asbestos may not pose an immediate risk while intact, its disturbance can release harmful fibers into the air, leading to serious health issues such as lung cancer and mesothelioma. It’s also important to note that asbestos was fully banned in the UK in November 1999. The ban made it illegal to buy, sell, import or export any asbestos containing materials. Identifying asbestos-containing materials allows for safe removal or management to prevent exposure and potential health risks.
Structural Movement: Issues such as settlement, heave, sway, and cracks can indicate underlying structural problems that compromise the integrity of the building. Identifying structural movement early can prevent further damage and costly repairs in the future.
Invasive Plants: Japanese knotweed and other invasive plants can cause significant damage to buildings and surrounding areas if left unchecked. Identifying and addressing invasive plant infestations during surveys is essential to prevent structural damage and legal issues.
Roof Issues: A damaged or poorly maintained roof can lead to water leaks, dampness, and structural damage. Identifying roof issues allows for timely repairs or replacement to prevent further damage to the property.
Woodworm and Beetle Infestation: Infestations of wood-boring insects such as woodworm and beetles can weaken structural timbers and compromise the stability of the building. Identifying and treating infestations early can prevent further damage and preserve the integrity of the structure.
Insulation: Poor insulation can result in energy loss, reduced comfort levels, and higher utility bills. Identifying insulation issues during surveys allows for improvements to be made to increase energy efficiency and comfort within the home.
Faulty Drain Pipes/Drainage Issues: Faulty drain pipes and drainage issues can lead to water damage, dampness, and unpleasant odors within the property. Identifying and addressing drainage problems ensures proper functioning and prevents water-related issues.
Electrical Safety Issues: Electrical safety hazards such as outdated wiring, faulty outlets, and inadequate grounding pose a risk of electrical fires and electrocution. Identifying and rectifying electrical safety issues during surveys ensures the safety of occupants and prevents potential hazards.
Mortgage Fees
When financing your home purchase with a mortgage, be aware of the various fees that may come into play. These fees can add up quickly and significantly impact the overall cost of buying a property. Here are some common mortgage fees to be prepared for:
Application Fees: Most mortgage lenders charge an application fee when you apply for a mortgage. This fee covers the administrative costs associated with processing your mortgage application.
Valuation Fees: Before approving your mortgage application, the lender will conduct a valuation of the property to assess its market value. This valuation fee is typically paid by the borrower and covers the cost of hiring a professional appraiser to evaluate the property's worth.
Higher Lending Charges (HLC): If your deposit is relatively small compared to the property's value, you may be subject to higher lending charges. These charges are imposed by some lenders as a way to mitigate the risk of lending to borrowers with lower down payments.
Insurance
Building insurance is often a requirement of obtaining a mortgage, and it's a sensible one. You don't want to be caught without it. It protects your new home from damage due to disasters like fire, flood, or subsidence. You might also consider life insurance, ensuring that your mortgage can be paid off should something happen to you, protecting your loved ones' right to the property.
Moving Expenses
Moving in day can also dent your budget. Whether you're hiring professional movers or doing it yourself, the costs of transporting your life's belongings to your new home can add up. Planning and budgeting for this final step in the home buying process are often overlooked but essential.
As you start this exciting journey, being aware of and budgeting for these costs ensures that the path to homeownership is as smooth as possible. The process of buying a new home can be costly and complex, but it leads to a rewarding destination: a home of your own. Consulting with a knowledgeable conveyancing solicitor can illuminate the path, helping you navigate the financial landscape of buying a home with confidence and peace of mind.
